China Industrial-Profit Growth Slows on Higher Costs
Chinese industrial companies’ profits grew at half the pace of a year earlier as oil and coal costs surged, increasing the likelihood that economic growth will continue to slow.
Combined net income rose 20.9 percent to 1.09 trillion yuan ($160 billion) through May from a year earlier, the statistics bureau said today. That was less than the 42.1 percent gain in the first five months of last year.
Power generators’ profits fell 74 percent and oil refiners and processors of coking coal made a loss after prices of those raw materials climbed to records. Weaker profit growth may cool investment, one of the main drivers of growth in the world’s fastest-growing major economy.
“Company profits will be squeezed by higher raw-material and fuel costs throughout this year,”said Xing Ziqiang, an economist at China International Capital Corp. in Beijing. He forecasts economic growth will slow to 10.3 percent this year from 11.9 percent in 2007.
The CSI 300 Index of stocks has tumbled 46 percent this year on concern that weaker global demand for exports and government measures to tame inflation will also cut profits. It fell 3.7 percent as of 10:22 a.m. in Shanghai.
China’s economy expanded 10.6 percent in the first quarter as export growth cooled and after blizzards disrupted production in January and February. Industrial profits rose 16.5 percent in the first two months from a year earlier.
Refiners’ Subsidies
Industrial company sales rose 29.3 percent to 18.4 trillion yuan through May from a year earlier.
China’s government has handed out billions of dollars in subsidies to refiners this year and last week raised state- controlled fuel and electricity prices, helping oil processors and power generators to bear the higher costs.
Oil refiners and the coking industry had a loss of 44.3 billion yuan over the five months, compared with a profit of 35.2 billion yuan a year earlier, the statistics bureau said.
China Petroleum & Chemical Corp., Asia’s largest refiner, posted a record profit drop for the first quarter. The company, also known as Sinopec, got a $1 billion state subsidy for April alone, according to a company official.
Crude oil has doubled in a year and thermal coal at Australia’s Newcastle port, a benchmark for Asia, rose last week to a record for the fourth week.
Demand for Coal
China’s demand for coal is increasing more quickly than its ability to produce it, “resulting in a tight coal market and constantly rising prices,” Macquarie Group Ltd. analysts led by Jim Lennon said in a report on June 23.
Coal-extraction industry profits climbed 98 percent. For oil and gas extraction, the gain was 54 percent. Iron and steel industry profits rose 26 percent.
Reconstruction work after the May 12 earthquake that devastated parts of Sichuan province will increase demand for cement, steel, copper, aluminum and other materials, according to the central bank.
“Energy and raw-material prices have risen too fast and inflation pressures are continuing to build,” it said in a report released this week.
Baosteel Group Corp., China’s largest steelmaker, has agreed to a record price increase for iron ore, an ingredient for making steel, Australia’s Rio Tinto Group said this week.
Labor costs are also climbing. The average urban wage was up 18.3 percent in the first quarter from a year earlier.
Producer-price inflation accelerated to 8.2 percent last month, the fastest pace in more than three years, even as consumer-price inflation eased to 7.7 percent.
Tags: Baosteel, central-bank, crude-oil, inflation, iron-steel, port, steel-maker